The RRSP: deferring tax
The contribution is deductible from taxable income, growth is sheltered, and the withdrawal is fully taxable as income. You are not eliminating tax: you are moving it in time, hoping for a lower rate on the way out.
The TFSA: paying tax now
The contribution is not deductible, but growth and withdrawals are tax-free. A withdrawal adds nothing to your taxable income, which has consequences beyond tax itself.
The rule that settles it
If your marginal rate today is higher than the rate you expect at withdrawal, the RRSP is generally advantageous. If the reverse — low income early in a career, or parental leave — the TFSA is. At equal rates, the mathematical result is the same.
The effect on income-tested benefits
An RRSP withdrawal raises income and can reduce benefits calculated on income, in retirement as during working life. A TFSA withdrawal does not. For a modest income, that argument often outweighs the tax itself.
Contribution room regained or lost
A TFSA withdrawal frees up contribution room, reusable from the following year. An RRSP withdrawal permanently forfeits the room, except under programs provided by law.
They are not mutually exclusive
A common strategy is to contribute to the RRSP in a high-income year, then put the resulting tax refund into a TFSA. The choice is made again each year, on that year’s income.
What none of this tells you
Neither account is an investment: they are tax wrappers. What you put inside, and whether that content suits your situation, is a matter for a person registered in the appropriate category.
No rate, price, or recommendation on this page. Amounts and limits change: verify them with official sources before deciding.